7 Of the Biggest Threats to Your Startup

It’s a sad fact that most startup businesses don’t even last 3 years and depending upon where you start up and what sector you are in, the death rate can be as high as 70%. Of course, we all start out with the best of intentions and if you weren’t an optimist then you wouldn’t start a business, but it is worth bearing this statistic in mind because understanding the biggest risks for your new business actually puts you ahead of the pack.

#1 A Cash Flow Crisis

This is without a shadow of a doubt the single biggest killer of small businesses. Many companies start up with too little cash and never actually get out of the rut of underfunding.

Even if they do have enough cash to start with, the lack of a formal cash flow forecast or understanding the difference between cash and profit means that many companies just leak cash at an alarming rate. The cure is simple but takes some time and effort. The first thing to do is to understand the difference between cash and profit and how it affects your business (see Not understanding your business model).

Once you have the theoretical grounding then work up a 12-month cash flow forecast and make sure your numbers are robust. For example, make sure you have rent as being paid quarterly, even if you have been quoted a monthly or annual cost by the landlord.

Once you have your cash flow forecast then you’ll see where the gaps are and know how much you need to raise in the form of external funding to stay alive.

# 2 Not Realising What Your Job Is

This is an incredibly common mistake that most business owners have made in their careers. The problem is that once you go it alone you cease to be the thing that you are good at and instead your job becomes ‘Business owner’. So even though you may think that your job is burglar alarm installer or car mechanic actually you need to affect a shift in your thinking, because what you do isn’t what you are.

Business Owners Think Differently To Workers

They have to consider the strategic outlook for their business, they have to plan, they have to mitigate risk. This means that although you may love what you do, you no longer have the luxury of being able to concentrate only on your profession.

#3 Not Investing in Marketing

Perhaps one of the worst things to happen to small businesses was the release of the 1989 film Field of dreams in which Kevin Costner uttered the immortal words “If you build it, they will come”.

Because They Won’t…Just because you have hung a sign outside your door or set up a lovely website, doesn’t mean to say that people will beat a path to your door and so many startups die early because they haven’t understood that great marketing is the engine room for a great business.

The trick is to set up your marketing plan, refine it, then do more of it and never stop. The day the marketing stops is the day the business starts to die.

#4 Aggressive Competitors

This is perhaps the risk that most businesses think of when they start up and yet it is arguably one of the least likely. If you are running a business that does what everyone else does then you are unlikely to run into problems. If you have a product or service that is totally new to the market and unique, then it will take time for your competitors to work out what you are doing and then react.

But react they will, so you need to make sure that you are able to cement your place in the business landscape before a bigger fish comes to eat you. And on a legal note, make sure you’re not infringing any copyrights or patents because if you do, you could find yourself with a dead business very quickly indeed!

#5 – Not Understanding Your Business Model

This is the central pillar of the business owner’s job. Understanding how your business makes its money, what the important inputs are, what the signs are of success and what the indicators are of trouble ahead are all ultra-important. A business owner that doesn’t realise what their most profitable lines are, who are their important customers and which suppliers could prove really useful is someone who is about to hit the unemployment lines.

You need to make sure that you are all over the detail and you understand clearly what happens if a supplier raises their prices or if a new competitor comes on the market. If you have difficulty with this then find someone who has been there and done it and see if you can persuade them to informally mentor you.

#6 Malware and Cyber Attacks

Any business these days holds electronic data and there are few startups that don’t live in the cloud. Banking, bookkeeping, websites and sales platforms all form part of the electronic tech stack of a new business and this is also one of the biggest areas of risk for the new business. So many new companies start-up in the local coffee shop or coworking space using public, unsecured WiFi that it is a wonder that more don’t fall prey to malware. But unsecured internet access is a significant area of concern for all new businesses and the truth is that even a moderate cyber attack could kill a fledgeling business very quickly indeed.

If you find yourself connecting to external systems then make sure you secure your access point by encrypting your laptop data storage and if you connect using your phone, getting an iPhone VPN.

An iPhone VPN ensures that when the user connects to the internet, the data sent over the connection is encrypted giving greater security.

This means that VPN connections can’t be hacked by snoopers or redirected to websites that allow malware to be inserted onto the device. It also means that keyloggers can’t ‘watch’ as you enter passwords to gain access to vital services like bank accounts.

#7 Not Staying Flexible

One of the biggest competitive advantages that startups have over larger competitors is that they are flexible and agile and when a threat or opportunity develops, they can move quickly to adapt. But too many smaller companies develop a way of doing things that the owner feels they can’t move away from and thus they lose their big advantage.

Sometimes flexibility can be a simple adjustment to the way you do things, but sometimes it can end up being a full pivot to take advantage of new opportunities. Startups should look at ways of building flexibility into the way they work and making sure they retain it for as long as possible as this gives them the best chance of success.

So the risks are pretty big and reading this article might make you think twice about starting your own business but don’t worry, plenty of people make a success of a business. The important thing is to remember our seven tips and ensure that you don’t fall into the common traps that often cause new companies to fail. Being forewarned is being forearmed and if you use our tips above, we’re sure that you’ll do really well.